Suppose an Investor Purchases a Five-Year, Zero-Coupon Treasury Security for $58.48

question 22

Multiple Choice

Suppose an investor purchases a five-year, zero-coupon Treasury security for $58.48 with a maturity value of $100. The investor could instead buy a six-month Treasury bill and reinvest the proceeds every six months for five years. The number of dollars that will be realized will ________.

• A) be independent of spot and forward rates.
• B) not depend on the six-month forward rates.
• C) depend solely on the six-month spot rate today.
• D) depend on the six-month forward rates.

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Definitions:

Believability Effects

The impact of an individual's perceived credibility or believability on the acceptance and persuasion of their message.

Syllogistic Conclusion

The process of deriving a conclusion from two or more premises that are asserted or assumed to be true in logic.

Normative Model

An approach or theory that prescribes how individuals should behave or make decisions, based on established norms or standards.

Expected Utility

A concept in economics and game theory that quantifies the utility expected from an uncertain prospect or decision.